County Gives Contract to Firm at Center of Fraud Scandal

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Orange County supervisors on Tuesday awarded a lucrative $74-million information technology contract to SAIC Inc., which paid half a billion dollars last year to avoid prosecution of a massive fraud case.

On a 4-1 vote with Supervisor Janet Nguyen dissenting, supervisors approved the contract, saying that staff had known about the fraud issue since last year and that SAIC gave them the best overall deal.

“I just have a strong comfort level” with assurances from the company’s management, said Supervisor Shawn Nelson.

With Tuesday’s approval, SAIC will be taking over management of the county’s data center and desktop computer support for the next five years.

The vote came after a heated debate over allegations of underbidding and whether the county was diligent in vetting the company.

Supervisor Nguyen directly accused SAIC of underbidding the project.

“My concern is still that I truly believe there was a low-balling on the part of SAIC,” said Nguyen. “I fear this contract is heading for a train wreck.”

A competitor, HP, came forward at the meeting and wanted to be allowed to rebid on the project given that SAIC’s price rose by $13.7 million after it was chosen as the preferred vendor.

“We did not have an opportunity to submit a new proposal,” said HP representative Amer Syed.

County staff, meanwhile, attributed the increase to additional services requested by the county.

SAIC admitted last March to defrauding New York City on a computer project. It paid more than $500 million to the authorities in one of the largest cases of municipal contract fraud in U.S. history.

On Tuesday, Supervisor Todd Spitzer accused SAIC Senior Vice President Bob Genter of not being forthcoming with supervisors when he described the New York fraud as being “a story of two bad apples.”

Spitzer pointed out that the company itself has admitted that its higher-level managers were warned about the fraud but failed to investigate.

“How in the world could you stand here today and say it was ‘two bad apples’?” asked Spitzer, adding that “it was a culture of corruption” within a unit of the company.

Genter at first said it was unclear whether the problems extended beyond two former managers but later agreed with Spitzer’s assessment.

Spitzer also questioned county staff about not verifying the company’s claims that a third-party monitor, approved by federal prosecutors, was giving it a clean bill of health.

“We should have known that before coming in today, shouldn’t we have?” said Spitzer, adding that he was “very bothered” the county didn’t have the monitor’s latest report.

“I think there has to be an ongoing, clean bill of health letter from the monitor,” said Spitzer. “This is a company on probation.”

At the end of the day, the federal monitor helped seal the deal for SAIC, with Spitzer voting for the contract after the company agreed to have the monitor send reports to Orange County.

Other supervisors steadfastly stood by SAIC at the meeting.

Nelson took issue from the dais with a Voice of OC article Tuesday morning raising the fraud issue, arguing that the problem in New York was in no way emblematic of the company.

Nelson said the fraud case “certainly was thoroughly vetted” in addition to the company paying a half-billion-dollar fine and agreeing to federal oversight.

Supervisor John Moorlach said a good side of SAIC’s federal prosecution is that it resulted in oversight by the third-party monitor.

“It appears to me that we’re getting free monitoring,” said Moorlach, adding that if the federal monitor finds something wrong, SAIC loses its federal contracts.

Reached by phone after Tuesday’s meeting, the federal monitor — Michael Eberhardt of Contractor Integrity Solutions — confirmed that he would be sending his reports to Orange County.

Eberhardt declined to say whether SAIC has had any major ethics problems since monitoring began. He said his information is provided in his official reports.

County officials pointed to SAIC’s experience with local and state governments as a reason to select the firm.

“We have what we believe is a solid contract with SAIC, a well-experienced vendor who will meet our goals,” said Mahesh Patel, the county’s IT chief.

At the same time, a top SAIC official has said the company is largely pulling out of local government work.

“It’s a hard business that has no money, and we don’t do it well. So why would we do more?” said Stu Shea, the firm’s chief operating officer, in a newspaper interview.

Orange County has a sore spot for ballooning IT costs, where tens of millions have been spent on contract increases and extensions.

Several recent IT chiefs have resigned under fire, and performance audit reports indicate a culture of sole-source contracts and cost overruns.

While the IT contracts are a critical part of the 17,000-employee county bureaucracy, which serves 3 million residents, the debate is often extremely technical and difficult to follow.

That frustration played out at Tuesday’s meeting, where staff had a hard time explaining much of the increase from SAIC’s bid to the final contract.

“I don’t feel that that’s been addressed,” said Moorlach, referring to $13 million of the increase. “You should have an answer.”

After Patel replied with general background information, such as “we’re buying a certain level of certainty with this contract,” Nelson took his turn asking about the increase.

“Help me here. I need to know the answer to my question,” said Nelson.

“It is having to do with the units, and it is still part of the scope as well with respect to some of our requirements changing,” replied Patel.

The data center contract and a related voice and data network contract have been lucrative for supervisors, with the top bidders providing more than $23,000 in political contributions to their campaign coffers.

Westminster resident Darrell Nolta asked supervisors on Tuesday to disclose their campaign contributions from SAIC, but none of them did so.

You can reach Nick Gerda at ngerda@gmail.com, and follow him on Twitter: @nicholasgerda.

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